What does a statutory audit involve, step by step?

Auditors in Hong Kong follow the Hong Kong Standards on Auditing (HKSAs), based on international standards.

Typical stages

1. Acceptance. Independence and identity checks, engagement letter, and the fee (the members fix it, s.404).
2. Planning and risk assessment. Understand the business, controls and key risks; set a materiality level.
3. Fieldwork. Test revenue, expenses, assets and liabilities against documents such as bank statements, invoices, contracts, and payroll.
4. External evidence. Bank and other confirmations (HKSA 505), attending a stock count where stock matters (HKSA 501).
5. Going concern and subsequent events. Looks at the period after the year-end.
6. Adjustments. Differences are discussed; the company corrects or the auditor assesses their effect.
7. Representation letter. Written confirmations from management (HKSA 580).
8. Opinion and report. The auditor signs the report (s.409) on the accounts the directors approve (s.387) with the directors' report (ss.388-391).

After the audit The accounts are laid before members and sent to them, and the tax return is filed with audited accounts where required.

An audit gives reasonable assurance, not a guarantee that there is no error. Its aim is an opinion on whether the statements are free of material misstatement.